Excessive Borrowing from Own Company Act

If a private limited company (BV) places funds with a director and major shareholder while retaining economic ownership, the Dutch Tax and Customs Administration considers these funds as debt under the Excessive Borrowing from Own Company Act. For expatriates residing in the Netherlands who hold a substantial interest in a Dutch BV or a foreign entity, it is essential to understand that the Act is not restricted to BVs established in the Netherlands. If you are a tax resident of the Netherlands, you are subject to this law, regardless of whether your BV is based in the Netherlands or abroad. 
 

Application of the Act to Foreign Structures 

Do you own shares in a foreign company? Does this company provide loans to you as a director and major shareholder? If so, these loans may also fall under the Excessive Borrowing from Own Company Act, provided you are a tax resident of the Netherlands. This means that even if the company is based abroad, the Dutch Tax and Customs Administration may regard the loans as being from the BV to you. 

The Act applies to every director and major shareholder who is a tax resident of the Netherlands. Therefore, if you relocate to the Netherlands as an expatriate and become a tax resident, the law will also apply to your foreign companies that provide you with loans as a director and major shareholder. 
 

Excessive Borrowing from Own Company Act 

Since 2023, significant borrowing from one’s own BV has been discouraged by the Excessive Borrowing from Own Company Act. In summary, directors and major shareholders who borrow more than €500,000 from their own BV(s) are required to pay tax on the excess amount (i.e., the amount exceeding €500,000). 

Important! 
If partners or direct relatives (blood relatives or in-laws in a direct line) also borrow from the BV(s) of the director and major shareholder, those loans (partially) count towards the €500,000 limit. 
 

Depositing Funds with a Director and Major Shareholder 

The Dutch Tax and Customs Administration has issued guidance on situations where a BV places funds with a director and major shareholder. This occurs in practice, for instance, when the director and major shareholder receives a higher interest rate than the BV, or when the BV seeks to make optimal use of the deposit guarantee scheme. By placing funds with the director and major shareholder, the funds can be distributed across multiple banks, allowing the deposit guarantee scheme to be used multiple times. This scheme ensures that in the event of payment difficulties at a bank, an amount of up to €100,000 per bank is protected. 

When a BV deposits funds with a director and major shareholder, the BV generally retains economic ownership of the funds. Only legal ownership is transferred to the director and major shareholder. 
 

Currency of the Loan 

For expatriates borrowing in currencies other than the euro, such as US dollars (USD) or British pounds (GBP), the loan amount is converted into euros for calculating the €500,000 threshold. This conversion is based on the exchange rate determined by the Dutch Tax and Customs Administration at the time of the loan. 
 

Counts Towards Excessive Borrowing 

The Dutch Tax and Customs Administration considers deposited funds as loans from the BV to the director and major shareholder, counting towards the Excessive Borrowing from Own Company Act, provided the funds are actually deposited into the director and major shareholder’s bank account(s). 
 

Even Without Economic Ownership 

It is irrelevant whether the director and major shareholder holds economic ownership of the funds. Even without economic ownership, the deposited funds are treated as loans from the BV to the director and major shareholder, counting towards the €500,000 threshold. If the total debts of the director and major shareholder to the BV exceed €500,000 due to these deposited funds, the director and major shareholder must pay tax on the excess amount. 
 

Excessive Borrowing from Own Company Act – Further Information 

For further details regarding the Excessive Borrowing from Own Company Act, please refer to our Advisory Handbook. 
 

Advice for Expatriates with Complex Structures 

Given the complexity of the Excessive Borrowing from Own Company Act, particularly for expatriates with international structures, it is strongly recommended to seek advice from a tax advisor specialising in international tax law. Doing so can help prevent unexpected tax liabilities.